CBW Says FDIC’s $20 Million AML Fine ‘Unreasonable’

CBW Bank, with roughly $90 million in assets, filed a suit against the Federal Deposit Insurance Corp. (FDIC) contending that $20.4 million in penalties assessed against the bank for alleged failures over anti-money laundering (AML) efforts and deficiencies are both “unprecedented” and “unreasonable.”  

The suit against the FDIC also states that the government agency’s structure and actions were and are unconstitutional.

In an action disclosed by the FDIC at the end of December and issued to the Kansas bank on Nov. 19, the FDIC charged that CBW “failed to maintain an adequate anti-money laundering/Countering the Financing of Terrorism” program while “recklessly engaged in unsafe or unsound practices” that were allegedly tied to repeated violations of the Bank Secrecy Act.

Focusing on AML/CFT

During the period cited in the FDIC suit, from 2018 to 2020, CBW operated a “multibillion dollar international monetary transfer business,” and generated the bulk of its fee-based revenues from correspondent banking services for international financial institutions (FIs) based outside the United States. Services included, among others, cross-border remote deposit capture services for checks and high-volume electronic funds transfers. The complaint alleges that CBW failed to file “hundreds” of suspicious activity reports and lacked appropriate customer due diligence practices. 

“Due to the failures described above, Respondent earned millions in fee income that it otherwise would not have earned if it had maintained an adequate AML/CFT compliance program,” the FDIC said in the filing, as the bank processed billions of dollars in transactions. 

In one example listed in the FDIC document, an unnamed CBW customer wired “over 70% of its bulk cash funds to accounts” at a different foreign FI based in Grand Cayman; CBW’s processes allegedly failed to review or flag those transactions.  Subsequent reviews in 2022 and 2023 found, per the FDIC’s order, that many of the deficiencies cited remained uncorrected.

The Response

CBW, for its part, filed its own complaint in Kansas in November, where the bank said that the penalty “is unreasonable and unprecedented for a bank of this size, complexity, and supervisory history. There is no justifiable basis for any CMP [civil monetary penalties], let alone for one of this magnitude given the conduct at issue in this case.” 

The bank also stated in its suit that the CMP was levied “for years-old conduct that occurred in the long-abandoned correspondent banking and money services businesses.” In 2020, CBW entered into a consent order with the FDIC that shut down those businesses.

The most recent suit also charged that the “FDIC seeks to impose civil monetary penalties in an amount it is aware will consume substantial amounts of the bank’s capital and harm its reputation.”

CBW said in the suit that the action by the FDIC is unconstitutional because administrative proceedings “unconstitutionally deprives CBW of its Seventh Amendment jury rights,” adding that the process subjects the bank “to an administrative proceeding presided over by an executive officer unconstitutionally insulated from presidential control.”

Reached for comment on Wednesday, the FDIC referred PYMNTS back to the orders, and a spokesperson stated that the “FDIC lets the orders speak for themselves.”

The actions come at a time, as PYMNTS Intelligence has reported, as many as 7 in 10 FIs have turned to artificial intelligence and machine learning to combat fraud. Separately, there has been some anticipation ahead of the incoming presidential administration the the very structure of several regulatory agencies — including the FDIC — may be reconfigured.

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